RITM - NYSE

Good day, and welcome to the Rithm Capital Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Emma Bolla, Associate General Counsel. Please go ahead.

Thank you, and good morning, everyone. I would like to thank you for joining us today for Rithm Capital's Second Quarter 2025 Earnings Call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm Capital; Nick Santoro, Chief Financial Officer of Rithm Capital; and Baron Silverstein, President of Newrez. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Capital website, www.rithmcap.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non- GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.

Thanks, Emma. Good morning, everyone, and welcome to our second quarter earnings call. The company had a great quarter. And when you look across all of our business lines and subsidiaries, everything so far continues to perform very, very well. On the origination side of our business, Newrez and Genesis, Newrez our mortgage company, Genesis, our RTL lender, are truly industry leaders. Genesis is coming off a record quarter of production. And when you think about Genesis and you go back to when we acquired the company in 2022, we've actually grown -- we've more than doubled origination, and we've taken earnings up by about threefold since we acquired the company. Newrez, our mortgage company continues to grow. We continue to add third-party servicing to the platform. Today, our total servicing is in excess of $850 billion. On the asset management side, our investment teams, both at Sculptor and Rithm Asset Management are seeing inflows across the board, led by both real estate and ABF, asset-based finance products. When you think about asset-based finance or ABF, there are very few asset managers in our opinion, who have the same experience and ability to source product as Rithm does. We have an edge. It's that simple. Aside from sourcing assets from third parties like everyone else, we make our own assets. We control the origination. We control the servicing on many of the products. And when you think about this, these are the very same products that we've been working on our entire careers, and that goes back 30-plus years. Recently, we announced a large SMA at the Rithm Asset Management level with 2 large institutional investors on our RTL product, creating an SMA that could be as large as $1.5 billion of loans on a go-forward basis. As we look forward, we've been very clear about our desire to grow our asset management platform. Like I say every quarter, performance matters first, and we'll continue to do all we can to differentiate ourselves where we can, earning the trust of our LPs and shareholders. Our plethora of fund offerings are tailored to meet our investor needs, and we will continue to roll out more products where we feel we can create an edge versus others. I'm really excited about our business and the ability to grow our world-class asset management business. Have a look at our results. They're terrific. On the M&A front, our pipelines are robust. We are working on scaling up our credit business, our origination business lines and other opportunistic situations where we can create value for both shareholders and LPs. Looking ahead, we're focused on growing earnings, creating synergies where possible and doing the same thing which got us here. Great results equal more AUM and a higher equity price. I'll now refer to the supplement, which has been posted online. I'm going to start on Page 3. So a typical slide that we put in most of our earnings decks. When you think about Rithm, here's the way that I like to think of us. Between our externally managed assets, which is $36 billion and the Rithm balance sheet, we manage $80 billion of assets. We have almost $8 billion of permanent capital. And just one thing that's not on the page, since inception, we paid out dividends between both our common equity and our preferreds of over $6 billion. If you take the $6 billion and you put it back in the context of shares, that would imply a stock price of about $25, just to give you a sense. When you think about the so-called Rithm Edge, we've had 59% growth in our earnings available for distribution since the first quarter of 2021. We continue to grow our asset management business and our opportunistic investing platform. When you think about our origination businesses, again, this is where I think we have an edge. We'll continue to hopefully create more of an edge, and we'll continue to acquire origination businesses down the road. Our mortgage servicer is the #3 largest mortgage servicer in the United States. That includes all the big banks as well. Our origination business is a top 5 mortgage originator in the United States. And our RTL lender is #2 as it relates to size in the U.S. When you think about our family of companies, Newrez, again, the mortgage company. Just to put this in context, we built this company beginning in approximately 2018. Yes, we started New Residential in 2013, while at Fortress. At that time, under the Fortress umbrella, we owned what is now known as Mr. Cooper. That was sold down the road. So we made a decision to build our own, and we started this business in -- give or take, 2018 when we first got into the operating business. Sculptor, as many of you know, we acquired in 2023. It's a world-class alternative asset manager with a great track record that goes back over 30 years. Genesis Capital, I pointed out before, we acquired in 2022 from Goldman Sachs Merchant Bank. And again, it is the second largest RTL lender in the business. One of the very, what I would call, invoke products today in -- when we look at our funds businesses. Rithm Property Trust, which was formerly known as Great Ajax. This is an externally managed mortgage REIT. We rebranded it from Great Ajax to Rithm Property Trust. We sold down a number of the so-called legacy assets that weren't accretive to earnings, and we're working on growing that over time. Adoor, which is our single-family rental business, which has about 4,000 units is another business that should rates come down over time, we will likely grow that and try to create an edge there as well. When you look at Page 4, our financial highlights, great quarter. GAAP net income, $283.9 million or $0.53 per diluted share. Return on equity for the entire company was 17%. Earnings available for distribution, $291.1 million or $0.54 per diluted share or an 18% return on equity. Book value closed the quarter at $6.7 billion or $12.71. That's up from, I think, $12.39 prior quarter. Our dividend yield is still 8.9%. We're paying out $0.25, and we ended the quarter with a record amount of cash and liquidity at $2.1 billion. When you think about the value prop, and this is something that, quite frankly, we spend a large amount of our time on, how do we take what we've built here at Rithm and at our prior name of New Residential and create -- and get real value for what we think is a world-class asset management business. So when you look at this slide, and then I'm going to take you through Page 6, which is a little bit easier. The true value and looking at Page 6 in the upper right side, -- for example, Mr. Cooper traded with Rocket for 2x book. If you look in the upper right side of this page, Newrez at 2x book would be an $8.3 billion book value based on the amount of equity that's in that business today. If you value the investment portfolio at 1x book, that's $1.1 billion. If you value Genesis, which is a great business at 1.3x book, that gets you to $760 million. And then the asset management business, when we think about different multiples could be as high as $1.8 billion, totaling $11.9 billion or a stock price that's in excess of $20. We're not going to get there today, unfortunately. I'd like us to be there today. But when I look at the sum of the parts and I think about how we're valued in the marketplace, I feel as though we're extremely undervalued. Page 7, when you look at Rithm Asset Management, this does include Sculptor as a wholly owned sub. When you look at all the different products that we have or the different funds or that we can offer to our LPs and investors, the themes on the left side, ABF and credit. We have a broad ABF mandate. Both Rithm and Sculptor have ABF funds. MSRs, RTLs, non-QM, credit, CLOs, structured solutions. We -- when I think about our credit business, and I keep talking about wanting to scale that up, yes, we have great experience in credit. Our returns speak for themselves. But I do think there's a lot more room for us to grow our credit business. On the real estate side, at the Sculptor level, world-class real estate business, been at it for 20-plus years, and that will continue to grow over time. When I think about it from the Rithm side, we have a number of different initiatives that we're working on here. I mentioned Rithm Property Trust, that is our externally managed REIT that is focused on commercial real estate. That will grow over time. We're extremely patient there. We're working on a couple of situations that could be really meaningful. When I look at multi-strategy, the multi-strat fund at Sculptor is a world-class fund with almost $9 billion of AUM with great results. And then recently, over the past year, we launched some energy transition type funds. So overall, I feel like we have product offerings for most, what I would call most LPs who want solutions or want one-stop shopping. Potential expansion themes could be direct lending. Yes, we do need to be in the insurance business and then we think about private equity and infrastructure. Page 8, when you look at the quarter in review, I mentioned on the Genesis side, record quarter, roughly $1.25 billion, continue to add new sponsors, great product and a great business, like I pointed out, very much in vogue with our LPs and in the so-called ABF space. Rithm Asset Management, Sculptor, $36 billion, up $3.5 billion of AUM since the close. Very, very good continued fundraising momentum across all the different products, very good performance in the second quarter. And then I pointed out earlier that we -- at the -- on the Rithm side, we entered into a recent SMA on $1.5 billion of RTL loans. On Newrez, the mortgage company speaks for itself. ROE is typically anywhere from in and around 20% servicing portfolio now $864 billion. We continue to increase our third-party servicing and think about other strategic ways to drive more earnings in the business that could be -- and Baron is going to talk about that through technology saves or technology initiatives across the platform. And then finally, on the investment portfolio, we recently did a non-QM securitization. We continue to do those. We invested about $2.2 billion in the quarter in residential and mortgage assets, which we feel are extremely attractive right now. When we look at the markets today and think about the macro economy, one is -- the economy feels as much as, quite frankly, early in the quarter, a little bit concerned with all the geopolitical risk that's going on. Right now, when you look over the course of the past quarter, a number of companies reported earnings. So I think everybody is expecting higher earnings on a go-forward basis. The economy feels pretty good while saying that we do feel that we're going to get 1 or 2 rate cuts this year. When you think about the tariff situation, obviously, the President and the administration, their deal guys, they continue to negotiate deals across the board, and we think that's going to continue. So while there could be blips where the market sell off due to some uncertainties, we feel like -- especially in light of the European deal that got announced over the weekend and now the administration trying to extend deadlines around the China tariffs, we feel like the policy uncertainty is declining. Risk appetite across the board remains high. [indiscernible] should continue to remain on the lower side right here. And what does that mean? That means all the products that we typically invest in should do much better. And then when we think about the yield curve, we have -- the way we have been hedging our book, we've had rate steepeners on for many, many months. We're going to continue to maintain that posture, meaning that we think the long end here at, call it [4.0%] on the 10-year note and the front end at [3.90%]. We do think when the Fed cuts rates, the curve will continue to steepen. The issue that you have with the long end is that the government needs to continue to sell lots and lots of debt to fund the deficit. So what we're going to see over time, we think is a steeper yield curve. And then at the bottom, we just talk about some of the different things around ABF and the Rithm platform. As I flip through, I'll just hit a couple of highlights and then I'll turn it back to Baron. Genesis business, again, leader in the RTL business, looking to grow that business over time. That could be through just more direct origination or through some acquisition. Again, when we bought the company, we did -- I think we were doing something around $1.5 billion to $2 billion of origination. Now we're doing something north of $4 billion, and that should continue to grow. The one thing we want to be very, very careful of here is credit as we go forward. On the asset management side, there's been no shortage of comments from me or any of us on our desire to grow our asset management business. You may ask why. And when you think about valuations, Rithm as a company, which makes north of $1 billion a year, trades something between 6 and 7x EBITDA. When you think about asset management businesses, they could trade as high as from 20 to 30x on fee-related earnings. So we have a huge push not to give up what got us here, which is our earnings, our balance sheet and the wonderful work that the teams do around either the operating companies or on the investment side, but to additionally grow our asset management capabilities. So you're going to see a lot more from us there. While saying that, we just have to be mindful of multiples where some of the asset management businesses trade. Rithm Property Trust, very, very excited about this. It's small now. It's about $300 million of equity. We're sitting with about $100 million of cash and liquidity on balance sheet. This will grow for us, likely will grow through some kind of M&A activity. And this is kind of no different than the way that we built New Residential going back to our Fortress days, where we started with $1 billion of capital, and we grew it over time through acquisitions. You're going to hopefully see the same thing from us on the Rithm Property Trust side. Page 16, we have a SPAC $200 million, gives you buying power of about $1.5 billion. We continue to focus on what I would call acquisitions across the board, could be in financial services, could be in so-called energy transition. That's this vehicle, which trades on the NYSE, we're very excited about to find the right target and opportunity to create real value again for shareholders. Finally, what I'll do is on the Newrez side, I'm going to turn it over to Baron. But just overall, when you think about whether it be the mortgage company or all the other business lines that we have, results matter first. Results will lead to higher AUM. And then hopefully, we get a proper revaluation of our overall company as we think about the growth trajectories of where we're going and actually the sum of the parts. So with that, Baron, why don't I turn it over to you and you could take the mortgage company.

Great. Thank you, Michael. Good morning, everyone. Starting on Slide 18. Another great quarter. And as Michael mentioned, as we execute on our '25 growth strategy, we had wins in recapture, growth of our third-party fee-based servicing business and efficiencies driven by our Rezi AI initiatives. Our second quarter pretax income, excluding mark-to-market, was approximately $275 million, up 2% quarter-over-quarter and 20% year-over-year and delivered a 19% ROE for the quarter. These results continue to show the power of our platform really through our ability to drive consistent earnings with the results first ethos, right, and a focus on organic growth and adding new partnerships and Michael continues to talk about opportunistic acquisitions. Turning to Slide 19. Our originations business remained in growth mode. We're now the fourth largest originator with $16 billion in funded volume, which is up 38% over last quarter. And while market competition continues to drive margin compression, our disciplined focus on profitable growth allowed us to opportunistically pick up market share while maximizing PTI and ROE for the quarter. We also expect future growth without having to chase volume through price. And this is evidenced by the launch of our Newrez Direct platform, which is focused on purchase recapture and a digital realtor partnership, allowing us to better support consumers through their home buying journey. Turning to Slide 20, our platform investments can also drive gains and recapture, right, as we deliver on our brand promise to maximize customer retention. While a reduction in rates would benefit overall origination volumes, our momentum in connecting with our consumers on purchase transactions and home equity products is key to our balanced and sustainable growth in any market. Our recapture strategy is now being driven by our new Chief Commercial Officer, Leslie Gillin, who was previously Chief Marketing Officer at JPMorgan, and she joined us this month. Customer retention remains a top growth strategy for us, and we're committed to delivering exceptional customer experience that differentiates our platform versus our competition. Moving to Slide 21 and continuing the theme of opportunities, we offer a differentiated product strategy through our manufacturing capabilities and non-agency assets. And when you couple that with our special servicing expertise, we're able to support clients and maximizing the performance of their investments. We are gaining market share in non-QM originations, but expect to see similar growth in both home equity and our prime Jumbo products, right? Our partnership with Rithm and third-party servicing clients are the strength of our franchise, as shown in our ability to retain 98% of the clients we service for today. Moving to Slide 22. Our servicing business continues to perform well with $234 million of pretax income, which is up 5% year- over-year. Our special servicing platform is the best in the business, and we continue to gain market share, as shown by increases in our servicing balances of 7% quarter-over-quarter and 22% year-over-year. These results were driven by adding 10 new clients in the second quarter, and we boarded $61 billion since the beginning of the year. We continue to see opportunities to grow whether through increasing wallet share with our existing clients or acquisition opportunities of both portfolios or operating platforms. Our performance across the servicing business is also driven by our operational efficiency enabled by our proprietary technology and scale that drives our cost leadership at a fully loaded $142 cost per loan. Finally, on Slide 23, our technology enhancements and AI initiatives are continuing to drive our costs lower. We are starting to see significant gains from our Rezi AI investments. These initial tools are not only driving returns, but also focused on homeowner experience, up-leveling our operational workflow and powering our predictive analytics. We have a robust road map, and this development is being driven by our new CIO, Brian Woodring, previously Chief Technology Officer at Rocket, who joined us last quarter. I continue to believe our business is as best positioned as it ever has been, and I look forward to sharing the next chapter of the Newrez growth story all with you. Thank you. Back to you, Michael.

Thanks, Baron. Operator, why don't we turn it back to you for some Q&A. Thank you.

[Operator Instructions] The first question today comes from Bose George with KBW.

I wanted to start with a question on Newrez. Any updated thoughts on when or if you might do something there in terms of listing? And then just on that Slide 6, there are obviously a lot of other things that you're looking at as well. So anything to comment on there in terms of unlocking value?

Yes. I think we spent -- obviously, Bose -- first of all, we spent a lot of time looking at how we're going to get our stock price to be what we think it should be. I think right now, when you look at the company and the growth of the company, we're likely not going to list it separate today. We're going to continue to grow the business, as Baron pointed out, whether that be through investments in people. We've made 2 significant hires over the past quarter, and we've made some real changes there. But really, how do we grow earnings there. And then once we continue to do that, and that's something we're very much focused on and grow our footprint in third-party servicing, which the team has done a great job doing during the quarter, then I think you're going to start to see the feel the full realization as far as what that so-called company is worth. One of the things we struggle with is like when you look at the so-called sum of the parts or you look at the real inputs that go into this business, and I think about some of the larger asset management businesses out there, like everybody is -- and I'm not going to use the word complicated as complicated, but everybody has got some kind of story around all of their underlying businesses. I think we have very -- the same. I think part of the challenge is for us, we're going to continue -- or not the challenge, we're going to continue to go down the same path in building our origination businesses, which I pointed out in our opening remarks. ABF is a product that's more in vogue today than ever been. Some of the products that Baron and his team create now, when you look at, for example, the non-QM market, we're doing more and more in that space. It's a product that's very much in demand for the so-called ABF funds that we and others have. You look at Jumbo product, you're going to continue to see more. We have a lot of uncertainty now with around what's going to happen, whether the government privatizes Fannie and Freddie, how do we think about that? That will be a great opportunity for us as we go down the road. So I think for now, our mission on the mortgage company is to continue to grow it, drive higher ROEs around that, be thoughtful about what we're doing. Baron pointed out bulk purchases. Do we want to buy bulk MSRs at 6.5 multiples? I'm not really sure. So everything is around the growth there. When I look at the so-called sum of the parts, really what's going to be the -- what's going to dial us up and I think create more of a differentiation around our business as we go forward is going to be around the asset management business. We continue to look at what I would say, some folks in the asset management business. We want to scale up our credit. We want to have -- we want to scale up. We want to do stuff in insurance -- so we're very much focused on the M&A landscape in those business lines as well, while recognizing that we're not going to pay 20x or 30x for an asset management business, but we're going to try to add -- do bolt-ons that are going to enable us to grow the platform overall.

Okay. Great. That's helpful. And then actually, just a follow-up on the insurance. Are there vehicles out there, insurance companies that you're looking at just from the acquisition side? And also, is -- can the SPAC play a role in that? Or is that -- if anything happens, is that at Rithm?

I think on the insurance side, it's likely going to happen at Rithm. Our M&A team has been at it. We've looked at insurance for the past number of years. Hard to get your arms around from a valuation standpoint. While saying that, there are some opportunities and some things that we're working on where we could potentially acquire either an insurance business or some company that has an insurance business and grow it. So the idea for us would be do something a little bit smaller and then grow it rather than go all in on an insurance business that is already full scaled and trading at too high of a premium. And then on the SPAC front, it's wide open to look at pretty much anything right now.

The next question comes from Crispin Love with Piper Sandler.

So there's been a bunch of change in the mortgage market in recent quarters. Rates remain elevated. We've seen some M&A with [indiscernible] and then some smaller ones out there. Can you just share how that might impact Newrez's strategy as it relates to the channels you're most focused on penetrating across retail, broker and correspondent as you are involved in all 3 and just where you might expect to lean into most and drive that incremental growth you've been talking about?

I mean, I think the growth is going to come -- actually, what -- I mean, just to give you an example, our non-QM business has grown dramatically over the course of the past quarter. And what we've done there is we've opened up new origination channels, both through correspondent and wholesale. So that's an area, for example, where going back to last year, what did we do last year, $1.5 billion or $2 billion or so? And this year, we're going to do...

Our forecast up to $4 billion.

So like that's an example of where we're likely going to double the amount of origination. Part of this has to do with the relative value of the product. And as we think about, again, the so-called ABF space, but that's an example. Baron alluded to hiring 2 extremely important hires for our business, one, Leslie Gillin, who comes to us from Chase, who's very much focused on the growth in the origination businesses and how we can make a difference for consumers. We added Brian from Rocket, who's very focused on technology and where we're going to go with AI and create potentially either more efficiencies and/or technology saves. On the M&A front, there's not that -- quite frankly, last year, we bought [indiscernible]. There's just not that much left for us to do in that space because we feel like we have everything. While saying that, if there's something that we think is going to be accretive to what we do, we'll likely go after it. The other thing that we're focused on is where can we -- how do we figure out a way to lower our cost of servicing. Baron, maybe you want to just touch on that and what we've done there.

Yes. I mean on slide -- I'll just make sure I get the right one. On Slide 23, we kind of highlighted some of the initial wins we've had on what I'll say is our technology enhancements and our different AI initiatives and which really -- whether it's on the chatbot side or whether it's on our telephony side or any of our operational workflows where we've incorporated our proprietary technology or brought in different technology partners to really drive our initiatives, but we've seen significant cost benefits. And we know where our road map is driving us today, we're going to continue to see significant benefits across the board for what I'll say is our AI initiatives and our platform.

Great. Appreciate that. And then just a second question for me on the value prop and optimizing Rithm's corporate structure. What do you view as the most logical and possible ways to do so over the near to intermediate term? What could that look like? Based on your answer to a prior question, it seems like the newer spend doesn't seem to be a near-term event. So just curious on kind of what you're looking at on the corporate structure standpoint.

So we continue to evaluate so-called growing Rithm Asset Management. We continue to evaluate the merits of a C-Corp. In doing both of those, we need to make sure that we have scale at all parts of our business. So meaning on the REIT side, it's got to be big enough that we have a stand-alone REIT, not different, quite frankly, than what Blackstone has done around BXMT and their broader business. Obviously, we're not Blackstone, but something similar to that. So the idea would be you'd have a REIT, you'd have a C- Corp and then you'd have your wholly owned subs in your asset management businesses. And that's really -- that's how we're trying to march forward. We need to create more scale on the REIT side to be able to create the C-Corp at the asset management side, and we need to create more FRE at the asset management side. So all of those things continue to be in play.

The next question comes from Eric Hagen with BTIG.

How do you guys think about capital allocation across the business right now, the flexibility to maybe move capital from one segment to the other. I mean, is the partnership at Genesis, is that going to support allocating capital to other segments maybe more easily or something? And do you feel like any of the 4 segments would get valued higher in the market if they operated with more leverage?

So it's an interesting question. I think when you take a step back and you look at Rithm, and this goes down to breaking out and to Bose's earlier question, do you take -- do you isolate the mortgage company from Genesis? Do you isolate Genesis from the mortgage company, all of our corporate earnings go into what we -- the way that we like to think of it as a funnel. From there, we could allocate capital as we see needed to the different segments that we're focused on that we think are going to generate the largest returns for our shareholders and the best kind of investment results for our LPs. So when we think about Genesis, we have -- we closed the quarter with a record amount of cash and liquidity of $2.1 billion. We look at Genesis and that business can and will continue to grow. It is highly competitive now because, quite frankly, many LPs want this type of product. And the other thing is what you're seeing from some of the other kind of RTL originators is a much more either refocused effort or a desire to create the product. So we just want to make sure that we're thoughtful, Number one, has to be around credit; and then two, as we think about the returns. But we're fairly agnostic. We're not going to go all in on any one strategy, but we can allocate capital, whether if there's an M&A acquisition, for example, in the Genesis business, we'll go there. We're focused -- a couple of areas that we don't have right now when you think about it is on the lending side, think about a type of one main financial. That would be good to get something on the consumer side of the business that we currently don't have. So the short answer, Eric, is that the money goes into the funnel, the funnel can then allocate the money across the different platform to support the asset management business and other things. Another good example is we support the sculptor CLO business, right? Rithm takes approximately 50% of the equity on every CLO deal at the Sculptor level. We are going to -- at some point, we'll roll out CLO equity funds. But right now, that's been the MO over the course of the past year. So a lot of support, not only for growing different investment strategies, but also for our portfolio companies.

Yes. Good stuff. Good response. I mean how do you guys think rate cuts from the Fed will drive the pace of capital raising, both for Sculptor and for the other diversified asset managers out there? I mean, do you think lower rates will potentially reduce the expected returns and raise valuations for the asset classes that Sculptor competes in?

Listen, raising capital is it is absolutely a full-time job. I mean if you think about the asset management world today and where folks are headed, you can hear the largest asset managers talking about their growth in the wealth channels and retail. There's been some articles on the go forward in the 401(k) market opening up to large-scale asset managers. When we look at capital formation, I could tell you, I've been across the globe 7 times in 2 years as well as with some of my other colleagues. Part of it is brand building, then the other part is what is the suite of products you have to offer that LP and how does that work in today's environment. So to your question, when you think about lower rates, I think rates are going to be lower in the front end. What does that do? It's going to help your financing. Longer term, though, it's going to lower your absolute level of asset yields, particularly if they're priced off the front end. So I think it remains to be seen. I think the way that we're approaching it is going to continue to be focused on our core knitting. Our ABF experience, in my opinion, is second to none when I look at our teams here, we've been together for 30- plus years. So I think it remains to be seen. But I don't -- I think spreads could come in on mortgage product because it's cheap on a relative basis compared to corporates. But in general, lower yields if rates really did plummet, won't be that beneficial to fixed income investors is what I would say.

Yes. Good stuff. If I could sneak in one more. The $1.7 billion that was raised at Sculptor in the quarter, which funds or strategies were those directed towards?

The funds are more broad-based. It could be something in the real estate business. It could be something around credit. And from a specific standpoint, the real estate business, I think looking at my Q1 comments was north of $3 billion there. Those guys have just knocked it out of the park. And not just from an AUM standpoint, the results are great. Credit business continues to see inflows. The CLO business continues to grow. I pointed out that at the Rithm level, we continue to work in partnerships supporting that business as well.

The next question comes from Randy Binner with B. Riley.

I have a couple. I guess, first on Slide 21, the non-QM or non-agency growth is pretty significant in the back half. Just trying to understand if that is a function of potential GSE reform? Or is that more just opportunity you see given kind of where rates in the housing market are?

This is opportunistic, right, from where we are that we're just going to continue to see momentum, right? We've grown out our wholesale business. We've basically penetrated and grown our correspondent acquisitions and our direct originations. It's really just driving where we are. There is a price competitive nature to it. Michael talked about the demand in the industry and where we're getting liquidity. So I would tell you it's a combination of all of those.

Okay. That's helpful. And then if we had movement on GSE reform and I think non-QM would pretty clearly be a market opportunity for you and your competitors, that growth could be even larger potentially? Or would that wouldn't be something that would happen this year. We'd be kind of looking longer term?

Yes. I mean there's -- it would obviously be for what I'll call the non-agency products, would be a very, very significant opportunity. We're already looking at those opportunities today on certain agency-eligible products. So absolutely, I agree. Yes.

Okay. Got it. And then if I could follow up, I think with Bose's question to Mike on the insurance M&A, what type of insurance property would you be looking to buy? I just didn't -- I didn't understand if it was something that's mortgage related or just more broadly in the insurance area.

It's more broad in the insurance area. We've looked at insurance for years, right? I mean it makes sense when you think about our manufacturing capability to have these long-dated liabilities. So it could be P&C, it could be life and annuities type stuff, but we're always on the hunt. Again, it won't be something that's as scaled as some of the larger asset managers, but I feel like we're getting closer on a so-called platform to be able to launch insurance products that would again help fund some of the things that we do here at Rithm.

Okay. So it's like a liability funding mechanism for your asset manager? Got it.

Correct.

All right. Can I have one more, if I can. This is all helpful. Just on credit, and I think this is for Mike. But you said you're careful on credit. And of course, you are, but spreads are incredibly tight. Are there any areas that are kind of on the watch list for you right now?

Yes. No, I think -- listen, I think credit spreads overall are extremely well bid, right? You're in a very, very good credit market, particularly on the corporate side. When -- if you look at the globe and you think about credit and you think about Rithm Asset Management, whether it be at the Sculptor level or at the Rithm level, what we're trying to do is if you sit down with an LP, you want to be able to have a full menu of products to be able to offer as not every LP wants to have 10 more of the same person doing the same thing. So some of the credit stuff that we'll be building out, for example, could be on the direct lending side. That's an area that we're focused on. Again, just to supplement some of the things. Keep in mind, Sculptor has been an opportunistic and regular way credit for us since -- essentially since inception. When I look at the credit markets on the mortgage side, I think mortgage credit is generally very, very attractive relative to corporates. But my comments around credit are really more around, I think, on the corporate side, away from the underwriting side -- on the corporate side. So we have products that we could offer to any LP that compete with others. Obviously, it's a very, very crowded space, as we all know. The real question for Rithm is how do we create alpha versus some of the large-scale asset managers who have been in this for many, many years where some of the stuff could be beta plays for a number of LPs. So it's really -- I think there's -- I know there's room for us. And then the question is, do we have the product to offer.

The next question comes from Doug Harter with UBS.

Hoping to talk a little bit more about the SMA for the residential transition lending. As you think about that, how much of kind of the new production kind of goes in there? And how do you think about the balance of third-party funds versus balance sheet? And then how replicatable is that kind of across your other asset generation assets?

It's a great question, Doug. The -- when we look at balance sheet versus putting assets in funds, we need to do both because we need to maintain and grow earnings at the so-called Rithm level, at the parent level. This SMA is something that we've been working on for -- establish a relationship going back a couple of years ago, and it's something we've been working on for a long, long time. So we're really, really excited. We do think this hopefully will lead into other opportunities to raise third-party capital, whether it be into funds or co-invest or even on the M&A front, where we're going to bring in partners. And I think that's the general theme of where we're going to go on a forward basis. So when you think about Rithm, the growth of the platform has to be on both sides. It has to be on both the fund side and it's got to be -- we don't want to balloon our balance sheet. Ideally, what we'd like to do is put everything we can in funds because it's a much better way to fund our business, but without giving up the earnings at the so-called corporate level because you have to get to scale first. So over the course of the next, what I would say, number of years, you're going to see the growth in both from an earnings perspective. And we just want to make sure from a funding vehicle standpoint, and this goes to the insurance questions that we just received, how do we think about funding our balance sheet. So I think you're going to see a little bit of both.

Great. And then just as you've talked about kind of scaling the REIT, how do you think about raising capital at the Rithm level to scale that? Or how would you go ahead -- look to scale the REIT?

I think, again, I go back to the same thing. We are -- when we look at the REIT business, and I'll use Rithm Property Trust as an example, think back to Fortress, think back to New Residential, we started that business with $1 billion of capital. Today, it has almost $8 billion. If you think about Rithm Property Trust today, it has $300 million of capital, we are not going to do a capital raise with the stock at whatever, give or take, $2.70. While saying that, we think the commercial real estate opportunity is something that is there. It could be extremely attractive. We have to be really thoughtful about how we deploy capital. The likelihood on any large-scale transaction would be to bring in third- party capital and partners. It's something very different than our early history where we did most things ourselves. We did do some stuff with some of the larger alt managers going back to the mid-teens. But I think on a go-forward basis, our new partners will likely be large-scale LPs who will help grow our business. No different, quite frankly, than I think what you've seen with the large alts.

The next question comes from Kenneth Lee with RBC Capital Markets.

Just one follow-up on that strategic partnership for the resi transition loans. And it sounds like it's an SMA kind of vehicle there. Could you talk a little bit more about the potential economics there? Is this something where Rithm gets a management fee? And could there also be performance fees related to such a thing?

It's both as you think about this on a go-forward basis. While saying that, it's not -- quite frankly, this is not -- I think the game changer for some of these things that we're doing are more about the strategic relationship and partnership as we bring in third-party capital to our business and the doors that hopefully, it opens up as we look at many other things across the board. As you know, being a REIT distributing, call it, almost $550 million a year in dividends is not a great way to retain capital. So we'll always need more capital until we get to a critical mass. And going back, I think, to some of the earlier questions about how do we think about our capital structure, whether it's a C-Corp or REIT, how we retain more earnings, all these things and bringing in third-party capital are going to help us do that. The economics on certain things that we're doing in the funds business, and it's not specific to Rithm, quite frankly, you're seeing management fees come in a bunch. And -- but when we think about what we're doing here, we have management fees and we have performance fees across the board.

Got you. Great. Very helpful there. And just one follow-up, if I may, and this is just another follow-up on the potential M&A there, and you talked about insurance being a potential area. It sounds like if there's going to be a pursuit of liability funding kind of businesses, would this also potentially include like fixed annuity platforms, something that we see in other alternative managers engage in as well?

It could. It absolutely could. We have to start somewhere. And like I said, we're not going to -- we can't afford and we don't think it would be the right thing for shareholders as well to go out and buy a fully scaled insurance business today at the multiples where they're trading. So we're going to have to start somewhere, which we believe that we can do and then grow no different than what we've done with a number of our other businesses.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Well, thanks to everybody for joining the call this morning. Thanks to all of you for your questions. We look forward to updating you throughout the quarter and next quarter and hopefully continue to put up the same wonderful results that we did this quarter. Enjoy the rest of the summer, everybody. Thank you.